Funds that buy shares in the less-developed nations posted
inflows of $407 million in the first six weeks of 2014, while
$21 billion was pulled from emerging markets, EPFR Global data
show. A gain of about 3 percent in the MSCI Frontier Market
Index this year pushed stocks to a 2008 high Feb. 19, even as
slower China growth and the Federal Reserve’s plan to trim bond
buying weighed on developing and developed-nation gauges.

Benchmark stock indexes in the United Arab Emirates, Qatar
and Vietnam, whose central banks control local currencies, are
among the 10 best performers this year within global equity
gauges tracked by Bloomberg. While investors dump emerging-market currencies including the Turkish lira, Hungary’s forint
and Brazil’s real, bourses in those nations languished with the
world’s worst performers in 2014.

A currency rout triggered by political instability from
Ukraine to Turkey and the fallout from the Fed’s tapering plan
cut into equity returns. A Bloomberg gauge tracking 20
developing-nation currencies and the MSCI Emerging Markets Index
are down 1.7 percent and 4.3 percent respectively in 2014.

Dubai Rally

Equities in Qatar, the world’s largest exporter of
liquefied natural gas, have rallied 14 percent this year, while
Abu Dhabi’s gauge has gained 15 percent and Dubai’s benchmark
posted returns of 24 percent, the most among 50 of the world’s
largest equity markets. The Persian Gulf countries keep their
currencies pegged to the dollar because earnings from energy
exports are denominated in the U.S. currency.

Shares in Dubai are benefiting from an economic recovery as
the regional business hub gears up to host the World Expo in
2020 with $8 billion of infrastructure spending. The event,
which traces its roots to London’s Great Exhibition of 1851,
gave Paris its Eiffel Tower in 1889 and drew 73 million visitors
to Shanghai in 2010. Qatar’s government forecasts a current-account surplus of about 23 percent of gross domestic product
this year and growth of 4.6 percent.

‘Currency Risk’

Persian Gulf “markets enjoy a current account surplus and
have never relied on global financing,” Rami Sidani, the Dubai-based head of Middle East and North Africa investments at
Schroder Investment Management Ltd., said by e-mail on Feb. 18.
“Their dollar-based economies mean that they do not present any
currency risk.”

Fixed exchange rates have also helped spur a rally in
Tunisian and Vietnamese shares this year, Sidani said.

Managed exchange rates in countries with less financial
prowess to defend them have posed risks to the dollar-denominated returns of investors as countries from Argentina to
Kazakhstan scale back support for their currencies.

Kazakhstan, whose biggest trading partner is Russia,
devalued the tenge by the most since 2009 on Feb. 11, citing
pressure on its currency from a weaker ruble. The nation’s
benchmark, up 18 percent in 2014, dropped the most in a month
the next day.

Tapping Reserves

Nigeria’s benchmark stock index has fallen 7.3 percent this
year as the central bank comes under pressure to tap into
reserves and defend the naira. The currency weakened to a record
low versus the dollar today after the government suspended
central bank Governor Lamido Sanusi.

Pegged exchange-rates may “get overvalued relative to
peers, thereby undermining the country’s competitiveness,”
Benoit Anne, head of emerging-market research at Societe
Generale in London, said by e-mail on Feb. 18.

Turkish policy makers were forced to raise interest rates
in a surprise meeting late January to halt a selloff that drove
the lira to record lows following a government corruption probe.
Russia this week canceled its bond auctions on concern a wealth
fund top-up plan will blunt central bank support for the ruble,
which also sank to a record.

The International Monetary Fund said Feb. 19 risks of
prolonged turmoil in developing nations are threatening the
world’s economic prospects.

The U.A.E. last year had a surplus of about 15 percent of
GDP, beating forecasts. Vietnam’s economy grew 5.42 percent in
2013, faster than a 5.25 percent pace in the previous year, as
the nation boosted exports.

“Frontier-market countries in general are still in the
sweet spot of their economic cycles versus a number of emerging
markets,” Andrew Brudenell, a London-based money manager at
HSBC Global Asset Management, which oversees about $550 million
in frontier markets, said by e-mail Feb. 18.